Consultants who work as contractors often build up funds their limited companies, they do this as a safe guard because being a contractor, there can be gaps between contracts and they will need cash to carry themselves through to the next contract.
But what if they decide to retire or they get offered their dream job as an employee, they may have lots of assets and cash in their company, perhaps more that £25,000.
They might even find that their main client insists they become employees for example
Some of the BBC’s biggest freelance stars could be asked to join the payroll or leave the corporation, as a new test aims to clear up tax issues.
It is part of a clampdown on the use of personal service companies (PSCs) and a move to tax more freelancers at source.
How could they close the company and use Entrepreneurs Tax Relief to pay 10% tax?
- The Insolvency Practitioner will ask the Contractor’s Accountant to confirm that the clients tax affairs are inorder and that appropriate advice has been given
- Final Accounts will need to be prepared and creditors paid
- A Declaration of Insolvency will be signed – The declaration of insolvency demonstrates that the company will be able to settle or secure liabilities and the costs of liquidation within 12 months
- A meeting of Shareholders will appoint the Insolvency Practitioner
- Notices will be posted at Companies House and in the London Gazzette
- Then the MVL can be a carried out and funds distributed
- Arrangements can be put in place to allow the directors access to funds during the process